Is there an augmented Kuznets curve among the provinces of the Philippines? A panel data analysis

Abstract

Purpose: This study explores the relationship between regional economic development and income inequality in the Philippines using a provincial panel dataset. Design/methodology/approach: This study performs static, spatial and dynamic panel data analyses to assess whether income inequality follows an N-shaped augmented Kuznets curve in the context of regional economic development. Findings: Our findings reveal that income inequality follows a semi-N-shaped curve, indicating that in the early stages of regional economic development, income inequality increases but at a decelerating rate. Unlike the inverted-U curve, it does not transition into a decline. After reaching an inflection point, income inequality rises. The Philippines has undergone a rapid shift in its industrial structure from relatively uniform manufacturing to skill-diverse services. This appears to have been particularly pronounced in the wealthier provinces, with their gross domestic product (GDP) shifting from manufacturing to high-productivity services. These provinces seem to have experienced the rising portion of the second Kuznets wave. Originality/value: A panel dataset covering 87 provinces was constructed based on five rounds of the Family Income and Expenditure Survey from 1997 to 2018. This panel dataset resolves many of the issues encountered in cross-country studies on economic development and income inequality. Our study is the first attempt to investigate the evolution of income inequality in relation to regional economic development in the Philippines.